Which one of the following time series is most likely to be stationary? Select one: Consumer...

Which one of the following time series is most likely to be stationary?

Select one:

Consumer price index
Financial asset returns
Life expectancy
Nominal gross domestic product

Provide a detailed explanation on why the selected option is correct.

Solutions

Expert Solution

Life Expectancy

Consumer Price Index is a measure of inflation over a period of time. The price level in the economy keeps on changing time to time. These changes vary in terms of their size or magnitude. So, the data for CPI may suffer from non-stationarity problem.

Similar, to CPI, Financial asset returns and Nominal Gross Domestic Product may suffer from many variations in asset prices and the values of goods and services. Asset returns depend upon the behaviour of stock market which is highly unpredictable. Hence, they may also suffer from this problem

We may expect Life Expectancy data to be most stationarity as the data is not changed frequently. Also, life expectancy includes considerations of many averages which reduce the non-stationarity element in the data.

Rahul Sunny answered 2 years ago

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